Congress approves HUD Section 202 Reform Bill

Posted: December 21, 2010

Today the House passed the Section 202 housing reform legislation,
which had won the Senate’s approval yesterday. We want to extend a
hearty thanks to Carol Gallante, the Assistant Secretary of HUD, for her leadership, and AAHSA (American Association of Housing and
Services for the Aging) for their advocacy to get to this point. The bill will soon head to the President’s
desk to be signed into law.

I recently heard Gallante speak at AAHSA’s annual meeting in
Los Angeles. Her federal agency oversees the Section 202 program, which has
been the bread-and-butter program for creating and supporting senior affordable
housing for over 50 years. I was
encouraged as she presented the proposed changes that HUD was seeking. It also raised some concerns, which we
will be a focus in upcoming advocacy effort.

The new HUD proposal is a major overhaul of the Section 202
as it has historically worked.
Developers received a large, up-front capital grant to fully fund
construction, followed by annual operating allocations to allow tenants to pay ~1/3
of their income in rent. This is
similar in concept to the public housing program, except that it is targeted
exclusively to seniors and operations have always been funded at responsible
levels. In the earlier days, HUD
allowed operating funds to support services to allow seniors to live in the
housing even as frailty and support needs increased. In our Brighton properties, for instance, we are able to
offer 24/7 staffing to help with individual needs as they arise—unscheduled and
planned. However, because the
needs of aging residents has grown increasingly over time, Section 202 projects
can no longer support the array of services needed to support seniors to live
independently for the longest possible time.

As I understand it, under the new program, Section 202 would
fund only a portion of development costs.
Sponsors would need to line up tax credits and private philanthropic
dollars, cobbling together an array of funding sources. (In the affordable
housing world we often joke that to make a project work these days, you need to
have almost as many funding sources as you do apartments!) To make this at least somewhat
feasible, HUD offers to replace the operating funding mechanism with Section 8
funding. This is based on a
formula tied to market rents, and it would make it predictable and involve less
HUD-sponsor project-specific negotiations. The rates are generally higher as well, allowing for some
debt coverage in the projects.
This should also allow some operating dollars to once again support
services.

There are many attractive elements to this bill – the ability
to provide services being highest on my list. There will also be some streamlining of the development and
refinancing processes of the 202 buildings, and that is always welcome. And while the complexity that the
multiple sources in one deal introduces is expensive and unwieldy, there are
two realities: (1) the 202 grants
have been covering less and less of a share of development, meaning we’re
already into these multi-source deals; and (2) the dollars that Congress will
be allocating for affordable housing in the foreseeable future are
shrinking. In fact, in the world
of affordable housing overall (i.e., not just for seniors), this model is
already the norm.

The one glitch that causes me to lose sleep is that the
success of the “new 202” depends on a state government ‘s willingness to
allocate tax credits to senior housing as it does for family housing. In Massachusetts, there’s a strong
preference for family housing, which stems at least in part from the fiscal
imperative. To the extent families
don’t have housing, the state is responsible for paying to shelter them at a
cost far greater than housing. If
seniors don’t have housing, the state has no such responsibility. The reality is that we KNOW that
supportive senior housing in fact saves the federal government ten times more
than it costs because it makes it possible for most seniors to avoid nursing
homes. However, the federal
government saves that money while the state allocates tax credits

There are many reasons to change state policy to better
promote senior housing development, and we will undoubtedly return to this
theme many times. For today, I
simply want to express our appreciation for Congress’ approval. If the legislation is enacted, we will
turn our attention to the Commonwealth to make sure state tax credit
allocations reflect the new program’s needs.

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